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2015 UBS Probe Poses Threat to US Owners of Undisclosed UBS Accounts

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This week, UBS Group AG confirmed that it was under a new investigation over whether the Switzerland bank sold unregistered securities to US taxpayers in violation of US law. This article will discuss the new UBS probe and the threat it poses to US owners of undisclosed UBS accounts who never went through an offshore voluntary disclosure. This article is not intended to convey tax or legal advice.

Prior Investigations and 2009 Deferred-Prosecution Agreement

The 2015 bearer bond investigation of UBS is the latest in the series of DOJ investigations of UBS. Previously, in 2009, as a result a landmark DOJ victory that started the today’s rout of bank secrecy laws throughout the world, UBS paid a $780 million dollar fine and disclosed 250 previously undisclosed UBS accounts of US taxpayers to the DOJ (some of the owners of these undisclosed UBS accounts were later criminally prosecuted by the IRS). The bank promised that it would be compliant with US law under its deferred-prosecution agreement with the DOJ. The agreement expired in October, 2010. This was a critical agreement for the US owners of undisclosed UBS accounts, and we will come back to this subject below.

In addition to the deferred-prosecution agreement in 2009, UBS also settled an antitrust case in 2011 concerning the municipal-bond investments market, and resolved a 2012 DOJ investigation involving alleged rigging of the London interbank offered rate (Libor). UBS was granted an agreement to extend the term of its non-prosecution deal in the latter investigation until later this year. Additionally, in a probe not involving the DOJ, UBS paid US, UK and Swiss authorities nearly $800 million in November to settle allegations that they did not have satisfactory controls to prevent traders from attempting to rig Forex dealing.

The DOJ also has reportedly also opened a new investigation concerning certain currency-linked structured products sold by UBS. International tax attorneys who worked with undisclosed UBS accounts for their US clients in the past know how common it was for UBS to sell these products to their US clients.

The 2015 UBS Investigation

As noted above, the new investigation is being conducted by the U.S. Attorney’s Office for the Eastern District of New York and from the U.S. Securities and Exchange Commission. UBS stated in its fourth-quarter report, “In January 2015, we received inquiries from the U.S. Attorney’s Office for the Eastern District of New York and from the U.S. Securities and Exchange Commission, which are investigating potential sales to U.S. persons of bearer bonds and other unregistered securities.” UBS added that it was cooperating with the authorities in the probes. According to various new sources, the bank is also being probed as to whether the alleged sales occurred while the bank was under DOJ supervision from its earlier 2009 tax evasion case.

Bearer bonds can be redeemed by anybody physically holding them. Because of the ease with which these instruments can be transferred, they are a potentially useful tool for enabling individuals to hide assets and evade taxes. While bearer bonds were not deposited on undisclosed UBS accounts, some US owners of undisclosed UBS accounts were owners of these unregulated instruments.

Undisclosed UBS Accounts and the 2015 UBS Investigation

According to various sources, if UBS is found to have breached the agreement by selling the unregistered bearer bonds to US persons in violation of US law during the time period in which the agreement was still in effect, it is possible that the DOJ will prosecute the bank under the original conspiracy charge, in addition to filing new charges and penalties.

The significance of this scenario lies in the fact that there may still be US taxpayers with undisclosed UBS accounts (whether owned directly, indirectly or constructively). Many of these taxpayers were trying to hide in the relative safety of the UBS 2009 Deferred-Prosecution Agreement, hoping that the worst was over for UBS.

Moreover, because UBS was classified as a Category 1 bank, it could not participate in the DOJ Program for Swiss Banks. This gave a wrong type of encouragement to some US owners of undisclosed UBS accounts not to come forward and go through a voluntary disclosure program.

In reality, however, due to the fact that UBS was the first bank that succumbed to the pressure from the US DOJ and disclosed previously undisclosed UBS accounts owned by US persons, the DOJ’s deal with UBS was relatively mild compared to the later penalties on other large Swiss Banks (such as Credit Suisse). Hence, there is a great incentive for the DOJ to re-open the investigation into UBS to force the bank to pay an amount equivalent to its other Swiss peers.

This means that, if the 2015 investigation is successful and the DOJ can get around the 2009 Deferred-Prosecution Agreement, the UBS may, in a new deal with DOJ, conduct a wholesale disclosure of the US owners of undisclosed UBS accounts – not only the current owners, but also the US owners who had undisclosed UBS accounts in the years 2008-2010.

What Should the US Owners of Undisclosed UBS Accounts Do?

Thus, the 2015 DOJ investigation of UBS could have disastrous consequences for US persons who owned undisclosed UBS accounts between the years 2008 and the present time. The premature disclosure of undisclosed UBS accounts may foreclose very important voluntary disclosure options for the US owners of these undisclosed UBS accounts. The subsequent investigations by the IRS may result in draconian civil penalties and even criminal prosecutions.

This is why US persons who owned undisclosed UBS accounts should contact an experienced international tax attorney to discuss their voluntary disclosure options as soon as possible.

Contact Sherayzen Law Office for Help with Your Undisclosed Foreign Accounts

If you are have not disclosed your foreign accounts (including undisclosed UBS accounts) to the IRS, you are advised to immediately contact the experienced international tax law firm of Sherayzen Law Office, Ltd. For many years now, we have been helping US taxpayers like you to bring their US tax affairs into full compliance, and we can help you.

Contact Us to Schedule Your Initial Consultation! Remember, contacting Sherayzen Law Office is Confidential!

FATCA Letters

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Following the implementation of Foreign Account Tax Compliance Act (“FATCA”) on July 1, 2014, foreign banks around the world started sending out FATCA Letters to their US (or suspected US) customers who had accounts on record prior to as well as on June 30, 2014. In a previous article, I discussed the reason for FATCA Letters and their impact on US taxpayers with undisclosed foreign accounts. In this article, I would like to focus the discussion on what type of information is typically contained in FATCA Letters.

FATCA Letters: Background Information

FATCA is codified in the Internal Revenue Code Sections 1471 through 1474 and contains an unprecedented amount of new international tax requirements for US persons, foreign financial institutions (FFIs), and US withholding agents (USWAs).

For the purpose of this article, I will concentrate solely on the FATCA requirement to analyze pre-existing accounts and report them to the IRS. Currently, according to the new deadline extensions found in IRS Notice 2014-43, “pre-existing” accounts are those accounts that were maintained by FFIs prior to or on June 30, 2014.

These pre-existing accounts are the main target for FATCA letters sent out to their clients by foreign banks. Of course, FATCA letters may also apply to the accounts opened after July 1, 2014, but, in many cases, these accounts were already opened according to FATCA account opening procedures (hence, all of the questions that are usually contained in FATCA letters should have been asked at the point when the account was opened).

The purpose for FATCA letters is for the FFI to obtain the necessary information to comply with its own FATCA reporting requirements. Hence ,the content of the FATCA letters is going to be fairly uniform irrespective of the FFI that sends it, even though the format of FATCA letters may differ greatly among the countries and even FFIs within a country.

FATCA Letters: Typical Content

As I mentioned above, virtually every FATCA Letter is geared toward obtaining certain types of information which is necessary for the FFI’s own reporting to the IRS (either directly or through a national tax authority). The overall requested information can be divided into three categories:

1. Personal Information

FATCA letters first typically try to confirm the exact name, nationality and address of the account holder. Most FATCA letters will also ask for the date of birth, country of birth and the account holder’s telephone number.

2. Determination of US Status and Form W-9

This is the most critical part of FATCA Letters, because it aims at verifying whether the account holder is a US person in any common way. The exact format of this part differs greatly from bank to bank, but a typical FATCA letter would either request the account holder to fill-out a Form W-9 directly or first ask a few questions (such as “do you have US nationality”, “are you a US Lawful Permanent Resident”, or “Have you spent a substantial period of time in the USA”) and then ask to fill-out Form W-9 if any of these questions are answered positively.

Also, depending on a country, an FFI would also typically ask the taxpayer to sign some sort of a consent to the disclosure of FATCA data to the IRS. In Switzerland, it is always present.

3. Further Determination of Status Questions; Possible Forms W-8BEN and W-9

Once the first basic part of the US status determination is finished, FATCA letters go on to ask a second set of questions aimed at uncovering potential inconsistencies in the status claim and verify if the account holder may be a US person in some other way.

In this part, FATCA letters typically ask whether the account holder was born in the United States, is a US person for any other reason, has effectively connected US income, has US mailing address, and has a US telephone number.

If the answer to any of these questions is “yes”, FATCA letters would generally ask the taxpayer to provide further information. For example, where the account holder is a US person for any other reason or cannot prove that he is not a US person if he was born in the United States, then FATCA letters would request Form W-9 and a consent to the disclosure of FATCA data to the IRS.

On the other hand, if the account holder persists in being considered as a non-US person and can prove it, then FATCA letters would ask for Form W-8BEN and a non-US passport (or other similar documentation). In case the account holder was born in the United States but claims to be a non-US person, FATCA letters would demand a copy of the certificate of loss of US nationality.

W-8BEN may also be required if the account holder is not a US person but has US-source income.

Impact of FATCA Letters on US Account Holders

The basic purpose behind FATCA is to allow the IRS to easily identify a US person’s non-compliance with US tax laws concerning reporting of foreign-source income and foreign assets. FATCA letters allow the FFIs to quickly identify with a fair degree of certainty whether their account holders are US persons and ultimately relate this information to the IRS on Form 8966.

This means that US taxpayers with undisclosed foreign accounts are currently facing an imminent risk of a third-party disclosure of their tax non-compliance to the IRS. If these taxpayers do not do anything, the risk of the IRS finding them has become unacceptably high.

Moreover, if the IRS commences an investigation of these US taxpayers before they engage in any type of voluntary disclosure, these taxpayers are not likely to be able to enter the IRS Offshore Voluntary Disclosure Program leaving them potentially unprotected to the draconian FBAR criminal and civil penalties as well as potentially large income tax penalties.

Thus, the receipt of FATCA letters is a critical legal event that starts the clock for these taxpayers in terms of their ability to voluntarily disclose their accounts. This means that these taxpayers need to act quickly and immediately consult an international tax attorney who specializes in this area to explore their voluntary disclosure options.

Contact Sherayzen Law Office if You Received a FATCA Letter

If you have undisclosed foreign accounts and you received a FATCA letter from your foreign bank, contact Sherayzen Law Office immediately. Mr. Eugene Sherayzen is an experienced international tax attorney who has successfully helped hundreds of US taxpayers like you to bring their affairs back into US tax compliance. Sherayzen Law Office, Ltd. can help you!

Contact Us to Schedule Your Confidential Consultation Now!